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Fed Meeting Causes Anticipation

08/03/2015

IN THIS ISSUE

Last Week in Review: The Fed’s Monetary Policy Statement kept investors playing a guessing game, while GDP improved in the second quarter. 


Forecast for the Week: July's Jobs Report will close out a week full of economic headliners.

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LAST WEEK IN REVIEW

Anticipation ... is keeping me waiting. Carly Simon certainly pegged the anthem for last week's news from the Fed. 

The Fed's highly anticipated Monetary Policy Statement gave no hint as to when a hike to the benchmark Fed Funds Rate may happen. Instead, the Fed, "anticipates that it will be appropriate to raise the target range for the Federal Funds Rate when it has seen some further improvement" in the economy. The statement noted inflation continues to run below its long-term objective of 2 percent, while both the labor market and the housing sector are improving.



The Fed will be keeping a close eye on key indicators in preparation for the next Federal Open Market Committee meeting and Monetary Policy Statement in September, including second quarter Gross Domestic Product (GDP). The initial reading for second quarter showed that GDP rose by 2.3 percent, which was well above the 0.6 percent recorded in the first quarter. The rise was due in part to consumer spending increasing nearly 3 percent and an uptick in U.S. exports. On the negative side, business investment was tepid. 



GDP is the broadest measure of economic activity in the U.S., so the improvement in the second quarter was a good sign for our economy. However, consumers are feeling less optimistic of late. July Consumer Confidence fell to 90.9, well below the 101.4 in June. The uncertainty and volatility in the financial markets prompted by the situations in Greece and China were key culprits for the decline. 



The housing sector will also play an important part in the Fed's decision regarding when to raise its benchmark Fed Funds Rate, and housing continues to show improvement. Home price gains remain steady, with the Case-Shiller 20-city Home Price Index rising 4.9 percent annually in May. However, one concern to note is that homeownership rates are at a 22-year low, per the U.S. Census Bureau. Limited supply and the millennial generation delaying their first home purchase are some factors contributing to this trend.



Anticipation will be mounting this summer, as the Fed weighs these factors and more in deciding when to raise its benchmark rate.

The inflation reading Employment Cost Index, which is the broadest measure of labor costs, gained 0.2% in the 2nd quarter of 2015, the smallest increase in 33 years. Wages rose, but at a slower pace in the second quarter than in the first quarter. The final reading on July Consumer Sentiment showed that the index slipped to 93.1 from the 96.1 recorded in the previous month. The index has averaged 94.5 since December, the highest eight-month span since 2004, as consumers remain positive on jobs and wages.

  • Freddie Mac released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates moving down with the average 30-year fixed mortgage rate ducking just under four percent.
  • 30-year fixed-rate mortgage (FRM) averaged 3.98 percent with an average 0.6 point for the week ending July 30, 2015, down from last week when it averaged 4.04 percent. A year ago at this time, the 30-year FRM averaged 4.12 percent

The good news for now is that Mortgage Bonds have rallied since mid-July. Home loan rates  remain near historic lows. Let me know if I can answer any questions at all about the mortgage market, housing or home loan rates for you or your clients. I can be reached at 908-202-7293 or at michael.borodinsky@caliberhomeloans.com.

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FORECAST FOR THE WEEK

This week continues with big economic headliners, culminating with the July Jobs Report on Friday. 

•Monday will see a full economic calendar with Personal Income, Personal Spending, the inflation-measuring Personal Consumption Expenditures and the ISM Manufacturing Index

•The July ADP National Employment Report and ISM Services Index will be released Wednesday. 

•As usual, weekly Initial Jobless Claims will be reported on Thursday.  

•That will bring us to Friday's Jobs Report for July, which includes Non-farm Payrolls and the Unemployment Rate

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve. In contrast, strong economic news normally has the opposite result. 

When you see these Bond prices moving higher, it means home loan rates are improving—and when they are moving lower, home loan rates are getting worse.

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By: Michael Borodinsky

Vice President/Regional Builder Branch Manager | Caliber Home Loans

 

 

 

 

 

 

 

Call Michael: 732-382-2654

Email Michael: Michael.Borodinsky@caliberhomeloans.com

Follow Michael on Twitter: @mikeborodinksy

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